beyondbrics

By Virginia Garcia Martinez of mergermarket

Dragon Next has become one of China’s favourite online games of 2010: when it was released for testing in July, hundreds of thousands of people played it simultaneously.

Now the company that developed Dragon Next – South Korea’s Eyedentity – has been acquired by China’s second-biggest online gaming publisher, Shanda Games, for $95m.

The move looks like an effort by Shanda to defend its 16-per-cent share of the Chinese market – a multi-billion dollar, and increasingly competitive, place – by getting access to new games.

Chinese consumers have long opted for online gaming, at internet cafes and elsewhere, over the use of gaming consuls, such as Sony’s Playstation or Microsoft’s Xbox. Niko Partners, a market intelligence company, estimates that there were 70m online gamers in China last year, creating an industry worth $3.6bn. It predicts the figures will double within five years – to 141m gamers, who will generate $9.2bn in turnover.

“While the global economic downturn hurt video game publishers through much of the world, China’s online game industry reflected no pain in 2009 and gamers continued to embraced online games as the best inexpensive source of social entertainment available,” Lisa Cosmas Hanson of Niko Partners said in March.

The authorities also seem to be warming towards online gaming: the State Council recently stated its importance for the country’s creative economy.

However, Shanda Games’ revenue fell last quarter due to competition from bigger rival Tencent, contributing to the lowest profits in two years for its owner, Shanda Interactive Entertainment. The purchase of Eyedentity should improve Shanda’s access to new games, adding to current favourites such as MirII.

The company is also working on new distribution channels, announcing this week a joint venture with China Network Television to establish an online game video channel.

Such moves may be the minimum required for Shanda to fend off its rivals.